Reducing the risk of the natural resource curse

Dr. Mark Partridge, the C. William Swank Chair of Rural-Urban Policy at Ohio State University, recently visited with Ohio Farm Bureau’s state policy development committee to discuss the oil and gas industry and how to avoid what he described as a natural resources curse.

“New energy development has created a wealth of opportunities, no doubt about that. The question is that when we look at how these energy-abundant economies do, we tend to see that they underperform in otherwise equal places,” Partridge said.

He explained that places with an abundance of natural resources such as the oil and gas areas in eastern Ohio tend to suffer a much lower rate of economic growth and low average incomes.

This happens for a number of reasons including lack of economic diversity and volatility of commodity revenues, causing a decline in the region’s average income over time.

“How do we take this nonrenewable resource that will be gone and compensate future generations so that we don’t have this decline in income?” he asked.

Partridge said if there are infrastructure costs to a community when natural resources are developed by industry, the community should be sure that the industry is paying those costs.

“If other businesses are paying the cost through higher taxes for infrastructure for the industry, they’re less competitive which means they are less prepared when there is a commodity crash,” he said.

Partridge said to try to keep as much economic diversification in the community as possible, and he suggested using a severance tax in a way that would help avoid future problems.

“Places that have done well have stocked away severance tax into a trust fund,” he said. “They then take some of the revenue earned from that to then lower taxes and make other kinds of investments in local economies.”

In recent months, Ohio Farm Bureau members have been discussing the pros and cons of a severance tax proposed by Gov. John Kasich earlier this year. Delegates to the organization’s upcoming annual meeting are expected to establish a position on the tax.